How The Drop In Oil Prices Is Affecting Nigerian Banks

Oil prices have continued to decline steadily since last year and every sector of the Nigerian economy has been affected including Nigerian banks. With oil prices now hovering around $33 per barrel, this is a sharp drop from the financing arrangements that were structured based on $70 to $100 per barrel oil, according to reports in THISDAY.

Some of the banks who have funded deals in the oil and gas industry are now in a dilemma on how to restructure the loans without extending the repayment period beyond the duration of the licenses granted by the federal government on the assets.

The Group Managing Director and Chief Executive Officer of Diamond Bank Plc, Mr. Uzoma Dozie had told THISDAY that the drop in the price of crude oil would not discourage the banks from financing exploration and production (E & P) activities, provided that enough reserves and other fundamentals are in place throughout the life of the loan.

According to him, if the assets have enough reserves to repay the loan at very low oil price, the banks will have to restructure the loans to longer terms.

“For us, what it means is that if we are supposed to be paid in five years, we are going to be paid in eight years. But the most important thing is that there is enough reserves to enable them pay the banks because for those companies, the assumption is that they will grow the production and they will have enough reserves to give the banks the confidence that they can increase their cash flow and continue to invest and re-invest even at low oil price,” he had said.

The Vice President in charge of Corporate Banking at FCMB, Mrs. Ronke Jibodu acknowledged that the drop in oil prices was the biggest problem facing the banks.

According to her, the oil and gas industry is a sector where the banks would like to play, adding that FCMB’s portfolio in the sector is about $500 million.

“And a large part of this portfolio is not performing because of the drop in oil price. We have to restructure some facilities but for how long are we going to restructure? What if the leases will expire in 2019? If the leases expire, what happens to our cashflow?” she said.

This article was culled from THISDAY